Standard & Poor’s Ratings Services has raised its ratings on Dublin-based, Allianz Worldwide Care to ‘A+’ from ‘A’. The outlook is stable.
The upgrade reflects AWC’s sound track record of strong and stable underwriting and operating performance. Its five-year average net combined ratio is 96.2% (2007-2011) and the volatility level inherent in the ratio is less than 1%. (Lower combined ratios indicate better profitability. A combined ratio of more than 100% signifies an underwriting loss.) In addition, AWC has an average return on equity of 21% and return on revenue of 5% and has reported a net profit in each year over the past five years, even as the company doubled in size in terms of gross premium income (€302 million in 2011, up from €136 million in 2007). Furthermore, AWC restructured its investment portfolio to underpin its strong underwriting performance with stable investment income and protect its capital base, which is regarded as positive.
Based on S&P’s base-case scenario, it is expected that AWC will sustain its strong operating performance and continue to report combined ratios of around 96% while increasing its premium income by 10%-20% in 2012-2014. It is also anticipated that the company will maintain its conservative investment profile and average credit quality of the portfolio at least within the ‘A’ range.
The ratings continue to be underpinned by the company’s strategic importance to Allianz Group (main operating entities are rated AA/Negative/–). The ratings continue to be offset by AWC’s competitive position and capitalization, which are viewed as weaker components of the ratings despite being good (within the ‘BBB’ range).
Based on S&P’s base-case scenario, it is not expected any material improvements in these components of the ratings in the next two years, but capital adequacy ratio is expected to be maintained at least within the ‘BBB’ range according to S&P’s capital model; this translates into a solvency margin of over 160%. The rating agency expects that if needed, Allianz Group will continue to provide capital support to AWC to meet the higher capital requirements of the business as it continues to grow.
According to S&P, AWC is likely to remain a strategically important member of the Allianz Group and will continue to maintain its position in its key U.K. and German corporate markets. S&P anticipates that AWC is likely to continue to further reinforce and diversify its geographic reach, particularly to new markets with high growth potential, suggesting that there is potential for on-going franchise development.
Standard & Poor’s considers a positive rating action to be remote. They could take a negative rating action if a significant change in the competitive environment shrinks underwriting margins and restricts growth, if capitalization weakens to below the ‘BBB’ range, or if the solvency margin falls to less than 160%.